CHAPTER - I

INTRODUCTION
Contents: 1.1 1.2 1.3 1.4 1.5 Introduction Risk Perspective in Banking Industry Review of Literature Statement of the Problem Objective of the Study

1.6 Methodology

1

1.1 Introduction: India is a developing country. Now a day’s many people are interested to invest in financial markets especially on equities to get high returns, and to save tax in honest way. Equities are playing a major role in contribution of capital to the business from the beginning. Since the introduction of shares concept, large numbers of investors are showing interest to invest in stock market. In an industry plagued with skepticism and a stock market increasingly difficult to predict and contend with, if one looks hard enough there may still be a genuine aid for the Day Trader and Short Term Investor. The price of a security represents a consensus. It is the price at which one person agrees to buy and another agrees to sell. The price at which an investor is willing to buy or sell depends primarily on his expectations. If he expects the security's price to rise, he will buy it; if the investor expects the price to fall, he will sell it. These simple statements are the cause of a major challenge in forecasting security prices, because they refer to human expectations. As we all know firsthand, humans expectations are neither easily quantifiable nor predictable. If prices are based on investor expectations, then knowing what a security should sell for; becomes less important than knowing what other investors expect it to sell for. That's not to say that knowing what a security should sell for isn't important--it is. But there is usually a fairly strong consensus of a stock's future earnings that the average investor cannot disprove. Angel Booking’s tryst with excellence in customer relations began more than 20 years ago. Angel Group has emerged as one of the top 10 retail broking houses in India and incorporated in 1987. Today, Angel has emerged as a premium Indian stock-broking and wealth management house, with an absolute focus on retail business and a commitment to provide "Real Value for Money" to all its clients. I have been assigned to do the project on Investment AnalysisAn Investor’s Perspective with help of Mr. Srinivas Gattupalli, an MBA Graduate and Financial Research expert and currently working as stock broker in Angel Broking Ltd.

2

1.2 Risk Perspective in Banking Industry Decisions like whether we should buy or sell when trading in the share market is a difficult task to do. It requires split-hair analysis of the market. Rising global competition, increasing deregulation, introduction of innovative products and delivery channels have pushed risk management to the forefront of today’s financial landscape. Ability to gauge the risks and take appropriate position will be the key to success. It can be said that risk takers will survive, effective risk managers will prosper and risk averse are likely to perish. In the regulated banking environment, banks had to primarily deal with credit or default risk. As we move into a perfect market economy, we have to deal with a whole range of market related risks like exchange risks, interest rate risk, etc. Operational risk, which had always existed in the system, would become more pronounced in the coming days as we have technology as a new factor in today’s banking. Traditional risk

management techniques become obsolete with the growth of derivatives and off-balance sheet operations, coupled with diversifications. The expansion in E-banking will lead to continuous vigilance and revisions of regulations.

1.3 Review of Literature One of the major areas of the economy that has received renewed focus in recent times has been the financial sector. Within the broad ambit of the financial sector, the banking sector has been the cynosure of academia and policymakers alike. Therefore, the banking sector in most emerging economies, including India, is passing through challenging times. Process of liberalization of the economy initiated in India since 1991-92, aimed at raising the allocative efficiency of available savings, increasing the return on investments and promoting, accelerated growth and development of the real sector. Towards this end, wide-ranging reforms were undertaken across the entire gamut of the financial system in order to promote a diversified, efficient and competitive financial system. The thrust of the process has been to cut costs and raise the productive efficiency of the banking sector as a whole. Source: Risk and Productivity Change of Public Sector Banks, Author(s): Abhiman Das Economic and Political Weekly, Vol. 37, No. 5, Money, Banking and Finance

3

The sector seems to be optimistic of posting strong growth in the couple of years in the view of a reasonable surge in demand. However. Asia Pacific’s vast population. the mix is complicated by the risk factors involved.A. has undergone metamorphosis in the light of liberalization and globalization. Under this project to better understand the Industry I have used Fundamental tools to make it more authentic and meaningful. the value of the stock will increase. and merges them with broader economic analysis and greater industry analysis to formulate the valuation of a stock. Simple Moving Average. Fundamental analysis examines all the dimensions of risk exposure and the probabilities of return. 4 .5 Objective of the Study The objective of this project is to deeply analyze our Banking Sector for investment purpose by monitoring the growth rate and performance on the basis of historical data. Detailed analysis of Banking Sector which is gearing towards international standards Analyze the impact of qualitative factors on industry’s and company’s prospects Comparative analysis of two main banks SBI. 1. provide the most significant growth opportunities for banks. just to keep the savvy investor on their toes. and underdeveloped retail banking services. The rise of retail lending in emerging economies like India has been of recent origin.1. one of the core sectors. Application various Technical tools to analyze Share Price movements. The main objectives of the Project study are:      To study the overall growth of Indian Economy which is growing at a fast pace. combined with high savings rates.4 Statement of the Problem The Banking Sector. When values increase then prices follow and returns on an investment will increase.C. HDFC in the industry through fundamental analysis. Banks will have to serve the retail banking segment effectively in order to utilize the growth opportunity. Moving Average Crossover and M.6 Methodology The value of common stock is determined in large measure by the performance of the firm that issued the stock. If the company is healthy and can demonstrate strength and growth. explosive economic growth. A detailed analysis of Banking Sector has been covered in respect of past growth and performance.D of selected companies 1.

Fundamental analysis typically focuses on key statistics in company’s financial statements to determine if the stock price is correctly valued. The fundamental analysis is to appraise the intrinsic value of a security. It insists that no one should purchase or sell a share on the basis of tips and rumors. This approach attempts to study the economic scenario.Fundamental Analysis: Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic. 3. Economic analysis Industry analysis Company analysis 5 . The fundamental approach calls upon the investors to make his buy or sell decision on the basis of a detailed analysis of the information about the company. It is the study of economic. industry and company conditions in an effort to determine the value of a company’s stock. industry position and the company expectations and is also known as “Economic-Industry-Company approach (EIC approach)”. 2. and the economy. Thus the EIC approach involves three steps: 1. environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. political. It is also known as ―top-down approach‖. The term simply refers to the analysis of the economic well-being of a financial entity as opposed to only its price movements. about the industry.

such as the head and shoulders or double top/bottom reversal patterns. stock market cycles or. inter-market and intra-market price correlations. and look for forms such as lines of support. moving averages.Technical Analysis: Technical analysis employs models and trading rules based on price and volume transformations. volume and other market information. balance days and cup and handle patterns. technical analysts seek to identify price patterns and market trends in financial markets and attempt to exploit those patterns. resistance. whereas fundamental analysis looks at the facts of the company. study technical indicators. Technical analysis stands in contrast to the fundamental analysis approach to security and stock analysis. moving averages. Technicians use various methods and tools. Most large brokerage. market. Using charts. business cycles. 6 . through recognition of chart patterns. and more obscure formations such as flags. regressions. classically. one of which is the use of charts. such as the relative strength index. trading group. pennants. Technicians employ many techniques. currency or commodity. Technical analysis analyzes price. or financial institutions will typically have both a technical analysis and fundamental analysis team. channels.

CHAPTER .3 Opportunities and Challenges for Players 7 .2 Growth and Performance of Banking Industry in India 2.1 Introduction of Indian Banking Industry 2.II AN OVERVIEW OF BANKING INDUSTRY IN INDIA Contents: 2.

A few banks have established an outstanding track record of innovation. asset quality and profitability with other regional banks over the last few years. the cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies. an enabling policy and regulatory framework will also be critical to their success. Structural weaknesses such as a fragmented industry structure. profitability and non-performing assets (NPAs). improved regulations. the inability of bank managements (with some notable exceptions) to improve capital 8 .1 Introduction of Indian Banking Industry: The last decade has seen many positive developments in the Indian banking sector. Policy makers have made some notable changes in policy and regulation to help strengthen the sector. which has harmed the long-term health of their economies. The cost of banking intermediation in India is higher and bank penetration is far lower than in other markets. growth and value creation. We emphasize the need to act both decisively and quickly to build an enabling. The policy makers. Further. periodic instances of the ―failure‖ of some weak banks have often threatened the stability of the system.2 Growth and Performance of Banking Industry in India Indian banks have compared favorably on growth. The sector now compares favorably with banking sectors in the region on metrics like growth. restrictions on capital availability and deployment. This is reflected in their market valuation. However. India’s banking industry must strengthen itself significantly if it has to support the modern and vibrant economy which India aspires to be. 2. A weak banking structure has been unable to fuel continued growth. The banking index has grown at a compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market index for the same period. enhancing the payments system and integrating regulations between commercial and co-operative banks. restrictive labor laws. which comprise the Reserve Bank of India (RBI). rather than a limiting. unless addressed.2. have made several notable efforts to improve regulation in the sector. banking sector in India. However. weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs). While bank lending has been a significant driver of GDP growth and employment. These changes include strengthening prudential norms. lack of institutional support infrastructure. innovation. The failure to respond to changing market realities has stunted the development of the financial sector in many developing countries. growth and value creation in the sector remain limited to a small part of it. While the onus for this change lies mainly with bank managements. could seriously weaken the health of the sector. Ministry of Finance and related government and financial sector regulatory entities.

First. the market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards. Third. credit and operations. banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates provided. Fourth. with increased interest in India.3 Opportunities and Challenges for Players The bar for what it means to be a successful player in the sector has been raised. given the demographic shifts resulting from changes in age profile and household income. increase the productivity of their service platforms and improve the performance ethic in their organizations could seriously affect future performance. competition from foreign banks will only intensify. 2. consumer finance and wealth management on the retail side. and in fee-based income and investment banking on the wholesale banking side. 9 . These require new skills in sales & marketing. consumers will increasingly demand enhanced institutional capabilities and service levels from banks.allocation. Second. This will expose the weaker banks. Four challenges must be addressed before success can be achieved.

1 Fundamental Analysis 3.2 Technical Analysis 10 .III INDUSTRY ANALYSIS AND INTERPRETATION Contents: 3.CHAPTER .

The fundamental analysis is to appraise the intrinsic value of a security. The analysis of macroeconomic environment is essential to understand the behavior of the stock prices. Thus the EIC approach involves three steps: a) Economic analysis b) Industry analysis c) Company analysis 3.50 percent reaching an historical high of 9.1 Fundamental Analysis: Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic.1 percent in 2010-11. the industry can also be expected to show rapid growth and vice versa.9 percent. The economy is expected to maintain the eight plus growth trajectory in fiscal 2011-12.3. industry and company conditions in an effort to determine the value of a company’s stock. The commonly analyzed macro economic factors are as follows: Gross Domestic Product (GDP): India has recorded 7.1.1 ECONOMIC ANALYSIS: The level of economic activity has an impact on investment in many ways. and when the level of economic activity is high.3 percent. environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument.The agriculture sector is estimated to have grown by 5. industry position and the company expectations and is also known as “Economic-Industry-Company approach (EIC approach)”. The performance of India's economy is expected to be robust in 2011-12. political. From 2006 until 2010.7 percent in March of 2009. It is the study of economic. stock prices are high reflecting the prosperous outlook for sales and profits of the firms. Fundamental analysis typically focuses on key statistics in company’s financial statements to determine if the stock price is correctly valued.4 percent.2 percent. stock prices are low. The agriculture and allied sector is projected to grow by 3. and the services sector by 9. the industrial sector by 9. If the economy grows rapidly. India's average annual GDP Growth was 8. This approach attempts to study the economic scenario.8% GDP for this first quarter.5 percent and the services sector by 10. the industrial sector by 9. The downside risks relate mainly to poor rainfall and to the performance of the global economy.7 percent in March of 2007 and a record low of 6. When the level of economic activity is low. 11 .

This sector has shown remarkable growth over the past two decades. 15% 44% Agriculture 42% Industry Service Figure: 3.1 Each Sector Contribution to GDP Figure: 3.2 India GDP Annual Growth Rate 12 . The banking and financial sector in India is growing at a steady rate of almost 10 percent annually. However this is one sector which still has a very long way to go. Also just a meager 14 percent of the adult population has availed of bank loans.1. As per the latest statistics only 59 percent of adults hold bank accounts in India.1.Banking & Finance accounts for 6 percent of India's the GDP.

which measures inflation in the whole of the domestic economy.We believe that inflation will remain high in 2011-12.50 respectively.72 percent in May of 2011. are likely to be a shade lower than their respective levels of 2010-11. The most well known measures of Inflation are the CPI which measures consumer prices. however. these higher interest rates are unlikely to dampen growth in consumption or investment demand.3 Indian Inflation Rate Interest Rates: Unlike in the past. Consumption expenditure is not leveraged enough and investment projects have progressed far into implementation for higher interest rates to have any adverse impact. Inflation is influenced much more by global commodity price trends and by higher employment caused by new capacities than by the levels of interest hikes announced by the Reserve Bank of India. Both.50% and 6. RBI's tight-money stance has been transmitted through the banking system this time. Both. However. would be a shade lower than their respective levels in 2010-11. Figure: 3. however.1.Growth and inflation are expected to remain high in 2011-12. Banks have raised interest rates. The current increased Repo Rate and Reverse Rate by RBI are 7. and the GDP deflator. Its corresponding new employment and higher wages is expected to drive capital formation 13 .Inflation: The inflation rate in India was last reported at 8.2 per cent increase in the Wholesale Price Index (WPI) and an equally high Consumer Price Index for Industrial Workers (CPI-IW). We project a 7.

This identification of economic and industry specific factors influencing share prices will help investors to identify the shares that fit individual expectations a) SWOT analysis Banking strategies are presently undergoing various transformations. the growth strategies of banks revolve around customer satisfaction. most of the banks had adopted fierce cost cutting measures to sustain their competitiveness. Irrespective of specific economic situations. Improved customer relationship management can only lead to fulfilment of long-term.and consumption growth in 2011-12. Till the recent past. as the overall scenario has changed over the last couple of years. Private final consumption expenditure is projected to grow by a healthy 7. This strategy however has become obsolete in the new light of immense growth opportunities for banking industry. Most bankers are now confident about their high performance in terms of organic growth and in realizing high returns.2% in FY10: Economic Survey GDP growth in FY11 seen at 8.1.6 per cent in 2011-12 in real terms. This requires. Industry growth at 8. Nowadays.25%) On full recovery. Economic survey 2011: The following are the key takeaways from the Economic Survey.         GDP growth expected at 7.2% Major decline in consumption expenditure growth in FY10 High food prices a risk for general inflation Hike in fuel prices will impact inflation Panel recommends cap on Central Government debt at 45% of GDP by 2014-15 and for States it is under 25%  Panel recommends cap on consolidated government debt at 68% of GDP by 2014-15 3.2 INDUSTRY ANALYSIS: Industry analysis is a type of business research that focuses on the status of an industry or an industrial sector. 14 .5 per cent and gross fixed capital formation by 14. as well as. efficient and accurate customer database management and development of well-trained sales force to develop and sustain long-term profitable customer relationship. and share prices in these industries may not decline as much as in other industries. in FY12. GDP growth to exceed 9%.5% (+/-0. short-term objectives of the bankers. some industries might be expected to perform better.

15 . enhancing the payments system and integrating regulations between commercial and co-operative banks.   Bank lending has been a significant driver of GDP growth and employment.27 public sector banks. Indian banking system has reached even to the remote corners of the country.2% and 6. the public sector banks hold over 75 percent of total assets of the banking industry. strong and transparent balance sheets relative to other banks in comparable economies in its region. asset quality and profitability with other regional banks over the last few years. with the private and foreign banks holding 18.  Policy makers have made some notable changes in policy and regulation to help strengthen the sector. a rating agency.  In terms of quality of assets and capital adequacy.000 ATMs. Extensive reach: the vast networking & growing number of branches & ATMs.STRENGTH  Indian banks have compared favorably on growth. Indian banks are considered to have clean.5% respectively. These changes include strengthening prudential norms. The banking index has grown at a compounded annual rate of over 51 percent since April 2001 as compared to a 27 per cent growth in the market index for the same period. They have a combined network of over 53. 29 private banks and 31 foreign banks.  According to a report by ICRA Limited.000 branches and 17.  India has 88 scheduled commercial banks (SCBs) .

lack of institutional support infrastructure. 16 . and in fee-based income and investment banking on the wholesale banking side. restrictive labor laws.WEAKNESS  PSBs need to fundamentally strengthen institutional skill levels especially in sales and marketing.especially in its services sector-the demand for banking services. service operations. OPPORTUNITY  Opportunities in credit cards.  With the growth in the Indian economy expected to be strong for quite some time. weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs).    Old private sector banks also have the need to fundamentally strengthen skill levels. risk management and the overall organizational performance ethic & strengthen human capital. consumer finance and wealth management on the retail side. actively adopting acquisitions as a means to grow and reaching the next level of performance in their service platforms. These require new skills in sales & marketing.  Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in PSU banks below 51% thus choking the headroom available to these banks for raining equity capital. The cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies. credit and operations. consumers will increasingly demand enhanced institutional capabilities and service levels from banks.  New private banks are continuing to innovate and develop differentiated business models to profitably serve segments like the rural/low income /HNI segments.  Given the demographic shifts resulting from changes in age profile and household income.  Foreign banks committed to making a play in India will need to adopt alternative approaches to win the ―race for the customer‖ and build a value-creating customer franchise in advance of regulations potentially opening up post 2009. restrictions on capital availability and deployment. unless industry utilities and service bureaus. mortgages and investment services are expected to be strong. Structural weaknesses such as a fragmented industry structure. especially retail banking.

This enabled banks and financial institutions. Rise in inflation figures which would lead to increase in interest rates. are given below:     BANKEX is based on the free float methodology of index construction The base date for BANKEX is 1st January 2002. Sectoral Indices are very useful in tracking the movement and performance of particular sector.The base value is 1000 points BSE has calculated the historical index values of BANKEX since 1st January 2002. A few important features of the BSE Bank Index. All stocks in a sectoral index belong to that sector only. Increase in the number of foreign players would pose a threat to the PSB as well as the private player b) Industry Specific Index: Industry specific index also called as sectoral index are those indices. THREATS    Threat of stability of the system: failure of some weak banks has often threatened the stability of the system. not only permitted to raise such funds but explore this route for raising cheaper funds in the overseas markets. Hence an index like the BSE BANKEX is made of banking stocks. which will be known as BANKEX. The government also liberalized the ECB norms to permit financial sector entities engaged in infrastructure funding to raise ECBs.  The Reserve Bank of India (RBI) has approved a proposal from the government to amend the Banking Regulation Act to permit banks to trade in commodities and commodity derivatives. 12 stocks which represent 90 percent of the total market capitalization of all banking sector stocks listed on BSE are included in the Index  The Index will be disseminated on a real-time basis through BSE Online Trading (BOLT) terminals  BANKEX will track the performance of the leading banking sector stocks listed on the BSE 17 . which represent a specific industry sector.

BANKEX comprises all the major Banking stocks in the BSE.1. Figure: 3.4 List of Banking Stocks in BANKEX 18 .

This figure clearly reflects the growth of all banking stocks with respect to remaining sector stocks.Comparing BANKEX with BSESN for last six months: The following figure indicates the performance of BANKEX. what are the policies of government towards the company and how the stake of the company divested among different groups of people. 19 . The company analysis shows the long term strength of the company that what is the financial Position of the company in the market where it stand among its competitors and who are the key drivers of the company. The present and future values are affected by a number of factors. what is the future plans of the company. The risk and return associated with the purchase of the stock is analyzed to take better investment decisions.5 Comparison of BANKEX with BSESN 3.1. This comparison is done for the last six months. starting from January to ending of June.1. Figure: 3. comprises of all sector stocks.3 COMPANY ANALYSIS: In the company analysis the investor assimilates the several bits of information related to the company and evaluates the present and future values of the stock. comprises of Banking stocks with overall BSESN.

including working capital finance. and rental receivables. and general insurance. The State Bank Group. Bank of Madras merged into the other two presidency banks. and distributes life. the government took over the stake held by the Reserve Bank of India. debit cards. It is state-owned. property. and educational loans. It also has around 130 branches overseas. with the Reserve Bank of India taking a 60% stake. securities. it is one of the largest financial institutions in the world. It operates in three segments: Retail Banking. construction equipment finance. It also provides auto. It offers commercial and transactional banking services. Also SBI is the only bank featured in the coveted "top 10 brands of India" list in an annual survey conducted by Brand Finance and The Economic Times in 2010. health. The State Bank of India is the 29th most reputed company in the world according to Forbes. The government of India nationalized the Imperial Bank of India in 1955. commercial vehicle. government bodies. forex and trade services. has the largest banking branch network in India. The Wholesale Banking segment provides loans. and private banking services.000 branches. as well as credit cards. recurring deposits. including products aimed at non-resident Indians (NRIs). and transaction services to large corporate. bonds. and transactional services. with over 16. It has a market share among Indian commercial banks of about 20% in deposits and loans. emerging corporate. home. public sector units. financial institutions. small and medium enterprise. fixed deposits. which in turn became State Bank of India. and medium scale enterprises. The Retail Banking segment offers various deposit products. and Treasury. trade services. bill payments. and health care finance. and warehouse receipt loans. non-fund facilities. including savings accounts. tax planning. loans against gold. investment advisory. personal. SBI provides a range of banking products through its vast network of branches in India and overseas. depository. and mutual fund products. HDFC BANK HDFC Bank Limited provides commercial banking products and services in India. this segment offers wealth advisory. Bank of Calcutta and Bank of Bombay to form Imperial Bank of India. current accounts. In addition. With an asset base of $352 billion and $285 billion in deposits. working capital finance. gold.State Bank of India State Bank of India (SBI) is the largest Indian banking and financial services company (by turnover and total assets) with its headquarters in Mumbai. 20 . In 2008. and demat accounts. Wholesale Banking. India. and renamed it the State Bank of India. retail agri and tractor loans.

stock exchange members. Ratios for investment purposes can be classified into profitability ratios. comparison and interpretations. From the balance sheet. Financial ratios are calculated from the balance sheet and profit and loss account. The company was founded in 1994 and is based in Mumbai. and banks. mutual funds. It helps to study the capital structure of the company. 2010. Historical financial statement helps to predict the future and the current information aids to analyze the present status of the company.transactional services. dividend yield. Profitability ratios are the most popular ratios since investors prefer to measure the present profit performance and use this information to forecast the future strength of the company. return on equity. turnover ratios. Ratios summarize the data for easy understanding.232 automated teller machines. and profit margins. money market and debt securities. The company also offers NRI banking services. Financial ratios provide numerical relationship between two relevant financial data. India. cash management. listing the company's current assets and liabilities. it operated a network of 1. The two main statements used in the analysis are Balance sheet and Profit and Loss Account. The statement gives the historical and current information about the company’s operations. The most often used profitability ratios are return on assets. liquidity position of the company can also be assessed with the information on current assets and current liabilities. and leverage ratios. Financial statement analysis is the study of a company’s financial statement from various viewpoints. price to book value. Ratio analysis: Ratio is a relationship between two figures expressed mathematically. As of March 31. The Treasury segment offers products in the areas of foreign exchange and derivatives. It is like a financial snapshot. This is a primary source of information for evaluating the investment prospects in the particular company’s stock. price to cash flow. the company's financial situation at a moment in time. Financial Analysis: The best source of financial information about a company is its own financial statements. 21 . present value of cash flows.725 branches in 779 cities. The relationship can be either expressed as a percent or as a quotient. price earnings multiplier. and structured solutions to corporate customers. and equities. as well as 4. It is prepared at the year end. The balance sheet is one of the financial statements that companies prepare every year for their shareholders. It is better for the investor to avoid a company with excessive debt component in its capital structure. and price to sales.

87 1. 22 .8 0.41 1.a) Return On Assets Ratio: Return on Assets gives an idea as to how efficient management is at using its assets to generate earnings.6 0. ROA is displayed as a percentage. The formula for return on assets = (Net Income/ Total Assets)*100.19 2008-09 0.93 1.4 1. Table: 3.51 2007-08 0.32 2010-11 0.1 Return on Assets of SBI and HDFC Year SBI HDFC 2006-07 0.4 0.8 1.6 1.6 1. where as HDFC shows growth in earnings consistently from last four years.94 1.6 Return on Assets of SBI and HDFC Interpretation: The earnings of SBI registered considerable decrease from last two years. It is calculated by dividing a company's annual earnings by its total assets.2 1 0.2 0 2007 2008 2009 2010 2011 SBI HDFC Figure: 3.22 2009-10 0.1.

2 Debt to Equity of SBI and HDFC Year SBI HDFC 2006-07 1518.1.7 Debt to Equity of SBI and HDFC Interpretation: Increase in D/E ratio for SBI indicates increasing in leveraging position.35 1105.5 915.12 878. 23 .28 966. Formula for calculating Debt-Equity ratio= Total Debt/ Total Equity.49 837.59 1800 1600 1400 1200 1000 800 600 400 200 0 2007 2008 2009 2010 2011 SBI HDFC Figure: 3. Table: 3.42 2007-08 1201.82 2010-11 1621. where HDFC makes less leveraging and equity more in throughout the years.41 2008-09 1373.58 2009-10 1375.b) Debt to Equity Ratio: The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.

51 21. ROE is expressed as a percentage and calculated as: Return on Equity = Net Income/Shareholder's Equity Table: 3.8 Return on Equity of SBI and HDFC Interpretation: SBI profitability has been in decreasing position from last two years where as HDFC made fluctuations in profitability over the years.70 2010-11 11.74 14.91 2009-10 13.90 13.c) Return On Equity Ratio: The amount of net income returned as a percentage of shareholders equity.34 15. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.3 Return on Equity of SBI and HDFC Year SBI HDFC 2006-07 14.49 2007-08 13.47 25 20 15 10 5 0 2007 2008 2009 2010 2011 SBI HDFC Figure: 3.1.72 13. 24 .83 2008-09 15.

e) Earnings Per Share Ratio: This ratio determines what the company is earning for every share.541.000.65 6.00 5.00 2.166. The computation of EPS is as follows: Earnings per share = Net profit/Number of shares outstanding 25 .34 8.1.54 10.000. Profit is the money a business makes after accounting for all the expenses.9 Profit of SBI and HDFC Interpretation: SBI has registered a decrease in profit in 2011 due to increase of NPA’s it was supposed to maintain extra provisioning compared to last year.00 4.729.000.00 0.46 9.00 1. earnings are the most important tool.000.00 6.000.522.00 2007 2008 2009 2010 2011 SBI HDFC Figure: 3. Profit can be calculated as: Profit= Total Income – Total Expenses Table: 3.57 9.4 Profit of SBI and HDFC Year 2006-07 2007-08 2008-09 2009-10 2010-11 SBI 4. HDFC bank showed a positive trend in net profits year by year.69 HDFC 2. EPS is calculated by dividing the earnings (net profit) by the total number of equity shares.000.818.370.456.98 6.837. costs and taxes needed to sustain the activity.403.000.d) Profit: Profit is the financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses.00 3.00 9. For many investors.000.000.21 3.000.121.00 7.39 7.00 8.15 4.

a transformation is required).56 44. in the most basic formulation.29 2007-08 106.4 160 140 120 100 80 60 40 20 0 2007 2008 2009 2010 2011 SBI HDFC Figure: 3.87 2008-09 143. CAR is similar to leverage. operational risk.29 43. 26 .In the most simple formulation.37 64.5 Earnings per Share of SBI and HDFC Year SBI HDFC 2006-07 86. which protects the bank's depositors or other lenders. it gives a view of the comparative earnings or earnings power of a firm.The EPS is a good measure of profitability and when compared with EPS of similar other companies. Table: 3.77 2009-10 144.1.07 84.10 Earnings per Share of SBI and HDFC Interpretation: Due to decrease in profits SBI has registered a decrease in EPS for the year 2011. since assets are by definition equal to debt plus equity.42 2010-11 116.67 52. it is comparable to the inverse of debt-toequity leverage formulations (although CAR uses equity over assets instead of debt-to-equity. where as HDFC bank has registered steady growth in EPS year by year. Banking regulators in most countries define and monitor CAR to protect depositors. f) Capital Adequacy Ratio: Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of meeting the time liabilities and other risks such as credit risk. a bank's capital is the "cushion" for potential losses. EPS calculated for a number of years indicates whether or not earning power of the company has increased. thereby maintaining confidence in the banking system.

27 .34 13.1.6 2008-09 14.6 Capital Adequacy Ratios of SBI and HDFC Year SBI HDFC 2006-07 12.22 18 16 14 12 10 8 6 4 2 0 2007 2008 2009 2010 2011 SBI HDFC Figure: 3. b) General Loss reserves. Capital adequacy ratio is defined as Tier 1 Capital .a)Equity Capital.11 Capital Adequacy of SBI and HDFC Interpretation: As it seems decrease in CAR for SBI for last two years. Whereas HDFC also recorded a decrease in CAR level by the year 2011 due to increase of NPA’s.Capital adequacy ratios ("CAR") are a measure of the amount of a bank's core capital expressed as a percentage of its assets weighted credit exposures. So. SBI recorded a decrease in CAR level.98 16.44 2010-11 11. c) Subordinate Term Debts Table: 3.69 2009-10 13.08 2007-08 13.39 17.25 15. this is due to increase in more number of NPA’s insisted to keep more provisioning from profits obtained. b) Disclosed Reserves Tier 2 Capital -a) Undisclosed Reserves. This trend would not be longer as banks are implementing best practices in order to decrease their NPA levels.47 13.

e. technical analysis does not result in absolute predictions about the future. a) Simple Moving Average: The moving average can be obtained by first taking the average of the first subset. Technical analysis uses a wide variety of charts that show price over time. Moving Average Acting as Resistance Sell Signal: At times when price is in a downtrend and the moving average is in a downtrend as well. creating a new subset of numbers. and price tests the SMA above and is rejected a few consecutive times (i. but is commonly used to generate buy and sell signals. the moving average is serving as a support line). and the moving average has been tested by price and price has bounced off the moving average a few times (i. then buy on the next pullbacks back to the Simple Moving Average. The plot line connecting all the (fixed) averages is the moving average. the moving average is serving as a resistance line). Like weather forecasting. then buy on the next rally up to the Simple Moving Average. which is averaged. Instead. each of which is the average of the corresponding subset of a larger set of data points. the moving average is in an uptrend. Moving Average Acting as Support Buy Signal: When price is in an uptrend and subsequently. This process is repeated over the entire data series.2 TECHNICAL ANALYSIS: Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements.3.e. The Simple Moving Average (SMA) is used mainly to identify trend direction. A moving average is a set of numbers. 28 . technical analysis can help investors anticipate what is "likely" to happen to prices over time. The Simple Moving Average is arguably the most popular technical analysis tool used by traders. The fixed subset size is then shifted forward.

2. Figure: 3.1 SBI closing share prices with Simple Moving Average Date 07-Jan.00 29 .Jun.a) State Bank of India: The following figure shows the closing share price trend with respect to fifty day Simple Moving Average. Table: 3.30 2583.2.2011 Closing Share Price 2697.54 2705.24 2422.3515. taken in different intervals depending on fluctuations over that period and at the bottom of the table 52 week average range is shown.95 Simple Moving Average 2963.14 52WK Range: 2123.2011 26-Apr-2011 03-May-2011 30.00 .10 2405.32 2717.1 SBI share price movements with 50 day SMA The following table represents closing prices of SBI.30 2934.

Table: 3.92 30-Jun-2011 2502. Figure: 3.87 8-Feb-2011 2004. Up to in the month of April we can observe Support and Resistance levels of SBI its resistance price is 2934.13 52WK Range: 1932.So comparing SMA with line chart SBI share buy position is maximum up to May and later it showed sell trend.2. taken in different intervals depending on fluctuations over that period and at the bottom of the table 52 week average range is shown.2 HDFC closing share prices with Simple Moving Average Closing Share Simple Moving Price Average 5-Jan-2011 2306.00 Date 30 .2 HDFC share price movements with 50 day SMA The following table represents closing prices of HDFC.39 2306.Interpretation: Simple Moving Average acts as in determine the support in uptrend and resistance in downtrend.2.00 – 2572. b) HDFC Bank: The following figure shows the closing share price trend with respect to fifty days Simple Moving Average.20.10 2196.30 recorded at end of April where as Support level is in the middle of April and is approximately 2783.60 2327.

Calculation: A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula: RSI = 100 . starting from January to June. the respective traded volumes of SBI shares also shown below the line chart. respectively.100/(1 + RS) Where RS = Average of x days' up closes / Average of x days' down closes. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. The Relative Strength of SBI shares are shown in bottom of the volume trades. This Relative Strength is based on 14 day level and also it consists of 60 and 30 as maximum and minimum levels of RSI. a) State Bank of India The following figure represents the closing prices of SBI share movements taken for last six months. or 90 and 10—occur less frequently but indicate stronger momentum. b) Relative Strength Index : The Relative Strength Index (RSI) is a technical indicator used in the technical analysis of financial markets. 31 . Depends upon the RSI levels one can estimate that the stock prices is overvalued or undervalued and also can estimates the Bullish and Bearish trends of the stock. Shorter or longer timeframes are used for alternately shorter or longer outlooks. This share shown good trend for buying from March to May and later undergone some fluctuations and then recover its position to buy from middle of June. More extreme high and low levels—80 and 20.Interpretation: The resistance level of HDFC is Rs 2400 recorded in April and support level is Rs 2285 recorded in starting of May. with high and low levels marked at 70 and 30. measured on a scale from 0 to 100. The RSI is most typically used on a 14 day timeframe.

starting from January to June.3 Relative Strength Index (RSI) of SBI Interpretation: SBI shows oversold position in may 26th and overbought position in march 28th. bullish trend from may ending to middle of June. 32 . The Relative Strength of HDFC shares are shown in bottom of the volume trades.Figure: 3. the respective traded volumes of HDFC shares also shown below the line chart.2. b) HDFC Bank The following figure represents the closing prices of HDFC share movements taken for last six months. Depends upon the RSI levels one can estimate that the stock prices is overvalued or undervalued and also can estimates the Bullish and Bearish trends of the stock. This Relative Strength is based on 14 day level and also it consists of 60 and 30 as maximum and minimum levels of RSI.Shown bearish trend from march ending to April ending.

No bearish and bullish trends. 33 .4 Relative Strength Index (RSI) of HDFC Interpretation: Above RSI of HDFC stock movements shows oversold position in middle of January and overbought position in starting of April.Figure: 3.2.

1 Findings 4.CHAPTER .IV SUMMARY OF FINDINGS AND CONCLUSION Contents: 4.2 Conclusion 34 .

35 .  Banking becomes an even greater driver of GDP growth and employment and large sections of the population gain access to quality banking products.1 FINDINGS: By analyzing the banking sector with the help of Fundamental and Technical analysis.4.  Foreign banks begin to be active in M&A.  Bank lending has been a significant driver of GDP growth and employment.   SBI. So recommending investing in banking sector with no doubt is going to be a good and smart option because this industry is booming like never before. SBI and HDFC Banks have outperformed in the industry.  Banking sector intermediation. HDFC Bank has been performing consistently and stands next to SBI in terms of increase in its growth. the largest public sector bank in India seems to have reached its saturation point after a very good growth over the years. it has been revealed that this sector has a lot of potential to grow.  Indian banks have compared favorably on growth. The two giants of Indian Banking Sector viz. as measured by total loans as a percentage of GDP.  The banking index has grown at a compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market index for the same period. Some M&A activity also begins to take place between private and public sector banks. periodic instances of the ―failure‖ of some weak banks have often threatened the stability of the system. asset quality and profitability with other regional banks over the last few years.  The interplay between policy and regulatory interventions and management strategies will determine the performance of Indian banking over the next few years. buying out some old private and newer private banks. could grow marginally from its current levels of 30 per cent to 45 per cent or grow significantly to over 100 per cent of GDP.

7 per cent.  However.5 %  M&A activity is driven primarily by new private banks. As a result.  Changes in regulations and bank capabilities reduce intermediation costs leading to increased growth.7 per cent. growth of these banks increases to 35 per cent. innovation and productivity. The share of banking sector value adds to GDP increases to over 4. periodic instances of the ―failure‖ of some weak banks have often threatened the stability of the system. while that of foreign banks increases to over 12 per cent of total assets. the cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies. The share of banking sector value add in GDP increases to over 7. from current levels of 2. 4.  Foreign banks also grow faster at 30 per cent due to a relaxation of some regulations. The share of private sector banks increases to 30 per cent of total sector assets. which take over some old private banks and also merge among themselves.2 CONCLUSION:  Indian banks have compared favorably on growth. enhancing the payments system and integrating regulations between commercial and co-operative banks. These changes include strengthening prudential norms. while PSBs improve their growth rate to 15 per cent. Policy makers have made some notable changes in policy and regulation to help strengthen the sector. foreign and new private banks grow at rates of 50 per cent. While bank lending has been a significant driver of GDP growth and employment. As a result. from current levels of 18 per cent. As a result. 36 . growth and productivity levels are low and the banking sector is unable to support a fast-growing economy. asset quality and profitability with other regional banks over the last few years.  Policy makers intervene to set restrictive conditions and management is unable to execute the Changes needed to enhance returns to shareholders and provide quality products and services to customers.  The share of the private sector banks (including through mergers with PSBs) increases to 35 per cent and that of foreign banks increases to 20 per cent of total sector assets.

increase the productivity of their service platforms and improve the performance ethic in their organizations could seriously affect future performance. risk management and the overall organizational performance ethic.e. strengthening human capital will be the single biggest challenge.. actively adopting acquisitions as a means to grow and reaching the next level of performance in their service platforms. Structural weaknesses such as a fragmented industry structure. The last. unless addressed. service operations. restrictive labour laws.  PSBs need to fundamentally strengthen institutional skill levels especially in sales and marketing. weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs). 37 . developing and retaining more leadership capacity would be key to achieving this and would pose the biggest challenge.  New private banks could reach the next level of their growth in the Indian banking sector by continuing to innovate and develop differentiated business models to profitably serve segments like the rural/low income and affluent/ HNI segments. restrictions on capital availability and deployment. the inability of bank managements (with some notable exceptions) to improve capital allocation. Attracting. i. even more imperative is their need to examine their participation in the Indian banking sector and their ability to remain independent in the light of the discontinuities in the sector.  Old private sector banks also have the need to fundamentally strengthen skill levels.  Further. However. could seriously weaken the health of the sector. lack of institutional support infrastructure.  The extent to which Indian policy makers and bank managements develop and execute such a clear and complementary agenda to tackle emerging discontinuities will lay the foundations for a high-performing sector of Banking.

com  www.com Books:   Investment Management: Security Analysis and Portfolio Management.BIBLIOGRAPHY Web Links:  www.moneycontrol.statebankofindia.com  www.tradingeconomics.com  www.in  www. by V.K Bhalla.hdfcbank.yahoofinance.com  www.com  www.angelbroking. by Foresman.com  www.org. Scott.investopedia.rbi.com  www. 38 . Security Analysis and Portfolio Management.bseindia.

Sign up to vote on this title
UsefulNot useful